"When someone retires, it is much like a house purchase. What is the retirement they want? What are their personal circumstances that will affect their spending?"
While these supply-side reforms may make a difference to the price of advice (or the profits of those who provide it) are they actually going to solve the advice gap problem by creating more demand amongst those who need it? What will these reforms do to help consumers understand why they need guidance or advice, and the value of obtaining that guidance or advice? Will the numbers seeking advice grow materially beyond those that use it today?
To make my point, let us look at two major financial decision points in a person’s life: buying a house and moving into retirement.
The TV programme ‘Location, Location, Location’ is a good example of the introduction to financial advice consumers are looking for. People who are finding it difficult to source their ideal home engage experts to source it for them. By helping them to prioritise their often conflicting requirements on restricted budgets, the presenters – or rather the army of production assistants - often find the ideal home for them. Sometimes the programme is not successful, but armed with more knowledge they are able to go back into the housing market themselves to source their requirements.
House purchase involves engagement with many professional advisers - estate agent, mortgage adviser, surveyor and solicitor before the transaction is finalised. Consumers look upon some of these professionals as unnecessary inconveniences and avoid using them or opt for low-cost alternatives. It is their choice as to what services they will use to avoid them overpaying for their home in the long run. Before engaging with the professionals they can compare services and get estimates of the fees they’ll incur.
In this context the house purchaser is the project manager, and as far as I am aware no one provides the location, location, location service that the consumer may really value. How long before someone introduces something similar and then becomes the introducer to the various professional service providers?
When someone retires, it is much like a house purchase. What is the retirement they want? What are their personal circumstances that will affect their spending? What wealth do they have to satisfy their expected spending needs? What do they need to compromise to be able to provide themselves with the best possible retirement they can achieve? The decisions they make are going to affect their life for the next, 10, 20, 30 years or more?
This is the ‘Location, Location, Location’ retirement service consumers in the mass market would really appreciate and value. The average retiree is either:
• Asset rich and income poor; many in the mass market will be in this position with far more wealth tied up in their home than in their pensions, in which case they need to know how to use their pension savings in conjunction with their housing wealth to finance their retirement spending.
• Some will however be income rich but asset poor having excess income for their spending needs but with little ready accessible funds to meet emergencies. No matter what their income, borrowing can be less accessible and more expensive in retirement. How can they use some of their income to create an accessible reserve that can help avoid the later life credit gap?
These are the decisions people need to solve. They are similar to finding a home with somewhere to securely keep the motorbike, which was a priority for one couple I saw recently on ‘Location, Location, Location’.
This highlights two problems that many retirement advisers face. One is that they are not able to give advice across the full range of retirement income solutions. A solicitor cannot duplicate the skills of a surveyor. The other is that to give the best possible advice they need to find out things about the client, that the client themselves may not consider relevant. Watch an episode of ‘Location, Location, Location’ and see what often comes out of the woodwork as the re-prioritisation of needs occurs.
Unlike a home purchase however a retirement strategy requires regular review. Outside influences that may require a new strategy can be allowed for but not predicted. Similarly, as with anything involving finances and investments, monitoring is required to keep the strategy on track.
The FAMR report is light on the demand side analysis and proposals. However therein lies the opportunity to develop co-ordinated services that will lead to many more consumers understanding the value of advice and what advisers can do for them.
